GDS Holdings Limited

Hello ladies and gentlemen, thank you for standing by for GDS Holdings Limited's fourth quarter and full year 2020 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.

Thank you. Hello, everyone. Welcome to 4Q and 4 Year 20 Earnings Conference Call of GDS Holdings Limited. The company's results were issued via Newswire Services earlier today and are posted online. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at investors.gdservices.com. Leading today's call is Mr. William Huang, GDS founder, chairman, and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS CFO, will then review the financial and operating results. Ms. Jamie Koo, our COO, is also available to answer questions. Before we continue, please note that today's discussion will contain forward-looking statements made under the same type of provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and certainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and certainties is included in a company's perspective as filed with U.S. SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that GDS earnings press release and this conference call includes discussions of unaudited gap financial information as well as unaudited non-gap financial measures. GDS press release contains a reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures. I will now turn the call over to GDS founder, chairman, and CEO, William Huang. Please go ahead, William.

Thank you, Laura. Hello, everyone. This is William. Thank you for joining us on today's call. GDS has been on an extraordinary journey for the past five years. The data center market in China has grown beyond imagination. As digitalization took off, Our growth trajectory has been unprecedented in the data center world. We have become the clear market leader, reaching a scale which is multiple times bigger than our closest competitors. We have the best customer relationships, the most complete market presence, by far the largest development pipeline, the strongest balance sheet, the lowest cost of capital, and most important of all, an unmatched reputation which reflects many years of consistent delivery and high operating standards. As we look forward from today, we see wave after wave of incremental demand driven by new technologies such as 5G, AI, cloud, and IoT, supported by highly favorable government policies. The market opportunities in front of us is inconceivable. are just waking up. We are moving rapidly ahead to reinforce our market position by innovating with products and business models, deepening our strategic customer relationships, adding substantially to our pipeline of scarce resource in tier one markets, enhancing our platform by entering new markets in China and overseas, seizing opportunities to further consolidate the market, and groundbreaking green initiatives. We have only just begun to reap the rewards of our past efforts 2021 will mark our 20th anniversary. For me personally, GDS is still at an early stage of development and over the next few years, we will take the business to another level. Despite the difficult operating environment last year, We made a tremendous progress over the past year across every aspect of our business and have met or exceeded our expectations. First of all, we beat our sales target, adding over 136,000 square meters or 271 megawatts of new customer commitments. We expanded our data center capacity in line with sales, adding nearly 140,000 square meters in service and under construction. We added significantly to our development pipeline, ending the year with 480,000 square meters secured for future development. We stepped up our M&A activities, closing four deals with over 50,000 square meters of capacity. We grew revenue by 39.2% and adjusted EBITDA by 47.0% year over year. Our adjusted EBITDA margin came out nearly 2.5 percentage points higher at 46.7%. We raised US dollars 2.4 billion of equity and successfully completed our Hong Kong IPO. Turning to our sales achievement on slide six, At the beginning of the year, we targeted 80,000 square meters of organic nets added, plus 20,000 square meters from acquisitions pending closing. We over-delivered by a big margin, achieving 108,000 square meters of organic nets added, including 14,000 square meters from BOT projects. and nearly 28,000 square meters from M&A. Looking forward to 2021, we believe that the current level of organic booking is sustainable at around 90,000 square meters to 100,000 square meters of net app, excluding BOT data centers. For the M&A part, We already have over 19,000 square meters net added in progress from the Beijing 15 acquisition, which is pending closing. And we aim to close more deals this year. Turning to slide seven. Every quarter, a handful of high-scale orders account for a large part of our sales. These must-win deals are typically major deployments at our edge-of-town campuses. High-scale customers look to land and expand in key locations. For cloud service providers, these locations are often configured as discrete availability zones, which are critical to their IT architecture. We are very strategic in targeting the first piece of business when customers deploy to a new area. We have succeeded many times in attracting high-scale customers to establish an initiative presence on our site. It requires close collaboration with customers. The right resource wherever they are going, and an undoubted reputation for delivery and operations. As a result of winning the first deployment, we have high visibility for a substantial amount of new business in 2021 and beyond. As customers deploy additional phase on our sites. Turning to slide eight. While we maintain great relationships with our top customers, our customer base now extended to almost all of the high-growth, high-scale names in China. We had an exciting breakthrough last year, and we are working on more. The growth potential of some of our newer customers is extraordinary. We are highly focused on deepening these relationships, and there are significantly new business opportunities in the pipeline. We have established a high level of trust with our customers. Provided we have the right resource, we have an edge in winning new business. In the eyes of our customers, GDS is not just an asset player, but a total solution provider. We have built our platform to mirror our customers' requirements and market presence. This fundamentally differentiates us from other players. Turning to the slide 12. It is clear that customers must continue to locate their mission-critical latency-sensitive data centers in tier-one markets. Customers target less than five-mile-seconds latency to core network nodes and between AZs, which impose a distance limited of up to 100 km around the urban center. It is also clear from years of government policy that the supply of suitable land and power in Taiwan markets will remain limited, not just in the urban areas but also in the surrounding edge of town locations. We recognize this year, this year ago, years ago, and made a huge effort to secure sufficient resource to underpin our growth in all tier one markets. And at the end of the 2020, we had secured 480,000 square meters of developable next floor area distributed across the key markets. Most of its land we have purchased from the local government together with an allocation of power. This is a very valuable asset and another fact which sets GDS apart. We are not stopping at the current level. We have some big land deals in the pipeline and we'll further strengthen our position. Sustainability is an integral part of our resource strategy. The whole of China is grappling with this and it is not an easy problem to solve. We are working on a range of innovative solutions to source as much green power as we can. We are doing green power trading wherever possible and purchasing green certificates. We are also working with partners to evaluate co-investing in green power projects directly in the future. In 2020, over 20% of our total power consumption was green. In 2021, This ratio will go materially higher. We aim to publish our first ESG report later this year. We will set up targets and the roadmap which are realistic and achievable based on deep analysis. In addition to the existing tier one markets, we believe that some new tier one markets will emerge in the next few years, particularly as a result of 5G and the need to push computing closer to the edge. Chongqing is an example. It has been on our radar for a while. We bought land there early last year. We are now building our first data center on the site, backed up with an anchor order in 1Q21. We are looking at another emerging trade market driven by customer demand. Over the next five years, we could enter 10 new markets in China. Turning to the slide 14, over the past few years, an increasing number of data center projects have been started by independent developers whose objective is to sell. As a result, we see a window of opportunity to consolidate the market. We have an M&A track record like no other, having done 10 deals in the past five years. In 2020, we stepped up our efforts. We previously announced the Shanghai SF19 and BJ15 acquisitions. Today, we are announcing two new deals. Both of them are data centers under construction, but not yet committed by customers. They will give us highly marketable resource in their respective markets. We are paying a relatively small premium to organic build cost. We have a variety of M&A opportunities on our radar screen, some of which are sizable. Turning to slide 50, a foundation of our strategy is to be a total solution provider to the leading Chinese customers wherever they have critical mass of demand. Our customers see a lot of value in working with partners who understand their ecosystem. The same logic which takes us to the new markets in China leads us to look at expanding overseas. Hong Kong is the start point outside mainland China. We currently have two major projects. The first of which is expected to come into service in 2022. We have recently secured an anchor cost order from Hong Kong One, which we will announce in the next few months. The China cloud and the internet giant have big ambitions in Southeast Asia. both directly through their core platforms and indirectly through their strategic investments. Take AliCloud as an example. They already have three AZ in Singapore, two in Malaysia, and two in Indonesia. Singapore is a well-established hub for Southeast Asia and a global tier one data center market. In recent years, We believe that a large part of incremental demand in Singapore has come from our whole market customers. For the time being, the Singapore government has suspended data center project approvals, while new policies are developed around land and power allocation. It is uncertain whether whether Singapore, given its resource constraints, will choose to open the door wide for extensive hyperscale deployment. The adjacent markets in Malaysia and Indonesia are less developed than Singapore. but have high growth potential. We believe that Chinese customer demand will be a critical success fact in these countries as well. We have established a picture of demand from our home market customers. They have repeatedly requested us to establish a present. We are actively pursuing opportunities with existing assets in Singapore, as well as getting positions for when approvals result. We have also entered into discussion with a number of potential local partners who have projects at various stages of development in Malaysia and Indonesia. We believe that expansion into Southeast Asia is strategically important and that we can capture several hundred megawatts of new business over the next five years. We are moving ahead in a very carefully and deliberate way. We aim to announce several new commitments in Southeast Asia over the course of this year. To conclude my session, GDS is head and shoulders above everyone else in the China market. This is a matter of fact. With what I told you today about the market opportunities in front of us, our strategic positioning, and our competitive advantages, we believe that the gap is only going to get bigger. Now, I will hand over to Dan for the financial and operating review.